Stephen Hester, the chief executive of Royal Bank of Scotland (RBS) is doing one of the toughest jobs in world business and is being paid a "modest" salary compared to his peers, MPs have been told.

Chairman of the bank, Sir Philip Hampton, said the chief executive was doing the most difficult job in the industry, and his pay was relatively small.

Mr Hester also mounted a robust defence of his performance, insisting he had managed to get the taxpayer "off the hook" for huge liabilities over the past four years.

The comments came as the bosses were questioned by the Parliamentary Commission on Banking Standards at the House of Commons.

Sir Philip told the panel: "I don't think it is hyperbole to say that Stephen is doing one of the most difficult and challenging, demanding jobs in world business ... because RBS was the biggest banking failure in the world and Stephen took it on at an exceptionally difficult time.

"He is also in his four years in charge being paid well below the market rate for a job in world banking."

He said Mr Hester's basic salary is around £1.2m a year, plus a pension contribution of around £400,000.

The CEO is also in line for an annual bonus of up to £2.4m and a long-term bonus of more than £4m - although Sir Philip stressed that the company had not performed well enough to trigger the full sum.

RBS was bailed out in 2008, and the Government now owns 82% of the bank

"These are very large amounts of money, none of which I hasten to add is triggered, so these are theoretical amounts which Stephen has not received anywhere remotely close," he said.

"So he has been doing one of the most challenging jobs and he has been one of the least well-paid.

"These are still very large amounts of money clearly by most standards - but relative to other people doing these jobs his pay has been modest, relatively."

Around £300m of this penalty will be clawed back from the bonus pool at RBS, which is 82% owned by the taxpayer.

Some 21 staff have left or are going through disciplinary proceedings in the wake of the revelations.

John Hourican, the head of the bank's investment banking arm, who was brought in to rescue the business after it was bailed out in 2008, is to forfeit around £4m in share options awarded to him based on past performance.

However, he will leave the bank with 12 months' pay worth £775,000 as he resigns over its involvement in the Libor-rigging scandal.

In a memo to bank staff obtained by Sky News, he said he bore "some responsibility" for misconduct, despite having no involvement in, or knowledge of, efforts to rig Libor submissions by RBS staff.

Commission chairman Andrew Tyrie said Mr Hourican had "paid a high price" - and asked Mr Hester if he thought there was a case he too should pay with his bonus.

Mr Hester said his bonus should be assessed on a broad range of issues, not just Libor.

"I think that my bonus should be assessed on all of the things I do well and badly," he said.

"And judgement should be reached in the round. Obviously it's not me that makes a judgement - it is the chairman and board.

"If you look at the RBS that we took on four years ago or so, we have done huge things to rescue a situation for the company and for society and for its different stakeholders, which includes hundreds of billions of pounds of risk that the country was exposed to, that it isn't exposed to anymore.

"So I think it is entirely proper for me and the board and the management team to be assessed on the things that we have done and the things we have not done.

"I believe that this nation is off the hook of a lot of bad things, but not yet all the way off the hook.

"There was never any prospect we could have discovered everything immediately, or fixed everything immediately, but we must of course be accountable for the balance of what we discovered, what we fixed, and in what period."

Earlier, Mr Hourican told the cross-party commission: "I do accept responsibility for the behaviour of our staff and therefore I accept responsibility for the failings that we have found.

"It is important that we do not talk about accepting responsibility and then not do so in our actions. That is why I have resigned."

Head of RBS Group's markets division, Peter Nielsen, said he also contemplated quitting.

"Of course I contemplated resigning," he said. "Indeed John and I talked about it. We talked about myself going instead of him."